Business context and reporting period
This unaudited Form 10-Q is for the quarter and six months ended June 30, 2016. The filing identifies the registrant as Trovagene, Inc., a molecular diagnostics company developing and commercializing cell-free DNA tests, including its Precision Cancer Monitoring platform. This differs from the company name in the request metadata.
Financial performance and liquidity
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Revenue | $103,400 | $223,886 |
| Cost of revenue | $409,463 | $718,734 |
| Gross loss | $306,063 | $494,848 |
| Operating loss | $9,980,245 | $20,438,893 |
| Net loss attributable to common shareholders | $10,208,338 | $20,476,916 |
| Basic loss per share | $0.34 | $0.69 |
Revenue remained minimal relative to operating costs, and gross margins were negative. Revenue included royalties, diagnostic services, and clinical research services. The company said diagnostic-service revenue is recognized when cash is collected, making its timing uncertain.
At June 30, cash and cash equivalents were $22.6 million and short-term investments were $28.0 million. Working capital was $40.7 million; total assets were $56.7 million and stockholders’ equity was $32.6 million. Total debt carrying amounts were approximately $15.2 million, comprising $6.1 million current and $9.0 million long-term. The company reported $14.99 million of operating cash used in the first half. Cash and cash equivalents fell $44.9 million, largely reflecting $28.0 million of purchases of short-term investments as well as operating cash use and debt payments.
Changes versus the prior comparable period
- Six-month revenue rose $47,570 to $223,886, mainly from higher diagnostic-service and new clinical research-service revenue; royalties decreased by $10,997.
- Six-month operating expenses rose to $20.66 million from $11.66 million. Research and development, selling and marketing, and general and administrative costs all increased as the company expanded personnel, studies, and commercial activity.
- Six-month net loss attributable to common shareholders increased $3.11 million to $20.48 million. Loss per basic share improved to $0.69 from $0.75, partly because the weighted-average share count rose to 29.9 million from 23.2 million.
- Operating cash use increased to $14.99 million from $10.18 million in the first half of 2015.
Outlook, risks, and unusual items
- Funding risk: Management stated the company would need additional capital within the next twelve months, and elsewhere said additional capital would be required during 2017. It warned financing might not be available on acceptable terms or at all, potentially requiring delays, cutbacks, discontinued programs, or unfavorable collaborations or asset dispositions. Cash, cash equivalents, and short-term investments were approximately $49.5 million at July 31, 2016.
- Debt refinancing after quarter-end: On July 20, 2016, the company amended its term loan. Interest-only payments were extended through March 1, 2017, with a possible extension to September 1, 2017 subject to specified milestones; maturity moved to February 1, 2020. The amendment carries a 7.5% final payment on funded amounts and included warrants to lenders.
- Operating outlook: Management expected continued operating cash outflows for several years and anticipated increases in research and development, selling and marketing, and general and administrative expenses. It expected diagnostic revenue to grow, but noted collection timing and royalty and supply-delivery timing could cause fluctuations.
- Notable expenses and obligations: Six-month stock-based compensation was $4.11 million. A former CEO’s immediately vested stock option generated approximately $1.2 million of expense. Legal and accounting costs increased, including costs related to litigation involving former executives. The company also disclosed related-party legal and research arrangements.
- Litigation and other risks: The company was pursuing a claim against its former CEO and CFO and defending a lawsuit brought by Pathway Genomics; both matters were in discovery. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the company identity: the supplied filing is for Trovagene, Inc., not Cardiff Oncology, Inc.
- Assess cash runway using operating cash burn, the July 2016 cash-and-investment balance, and the company’s stated need for additional capital.
- Review the amended loan’s interest, final payment, maturity, milestone conditions for extending interest-only payments, and covenant compliance.
- Track whether test volumes and collections improve sufficiently to address negative gross margins and whether commercial growth offsets rising operating costs.
- Monitor the outcomes and potential costs of the disclosed lawsuits, along with dilution risk from future equity financing and outstanding equity awards.